Platforms and partnerships: Southeast Asia’s most successful startup

June 22, 2019
Why Grab is on a mission to develop the region’s digital ecosystem.

In a mere seven years, Malaysia-headquartered Grab has evolved from a ride-hailing business into a fully-fledged digital platform with fintech, travel, and grocery delivery services, and has emerged as Southeast Asia’s most valuable startup, estimated at $14 billion. Sean Goh, head of Grab Malaysia, talks to MIT Technology Review Insights about the digital economy, ecosystem dynamics, and the group’s vision for the future.

Malaysia’s digital economy is robust and well-connected, with 80 percent of people using the internet, according to the ITU. On internet connectivity and mobile cellular subscriptions, which exceed one per individual, Malaysia performs better than would be predicted by per capita income, according to a study by the World Bank on Malaysia’s Digital Economy. Within the region, only Japan, the Republic of Korea, and Singapore have higher internet penetration rates.

The Malaysian government has promoted e-commerce in particular, with creation of its Digital Free-Trade Zone, an online platform to connect small and medium-sized enterprises with cross-border opportunities, among other initiatives. The authorities estimate that by 2020, the (broadly-defined) digital economy will account for 20 percent of the country’s GDP.

But governments, of course, can stifle technological progress, as well as facilitate it. One of Grab’s current challenges is the requirement that by mid-July 2019, e-hailing drivers must have a public service vehicle license. This will substantially increase drivers’ operating costs and may force some off the road—resulting in higher fares for customers.

The company is offering reimbursements to mitigate the impact, but Goh is still concerned that customers could end up being short-changed. “There is a general agreement that there has been a huge step up for the transport landscape from a few years ago,” he says, leading his team to question whether an “old rule is needed for a service that’s clearly working much better.”

“The law doesn’t have to be a negative thing; if done correctly it could be a very positive thing,” says Goh. “Issues tend to arise when the intervention is based on archaic rules or done unnecessarily.” For policy to be really conducive to digital innovation on the ground, he says, it has to forward-looking, targeted, and adding value to the industry. One example would be insurance coverage. Grab Malaysia has publicly called for regulators and insurers to address to lack of e-hailing insurance products that cater to the vast majority of drivers, especially those driving part time.

In some areas, Malaysia does have progressive policies. Goh cites Bank Negara’s Sandbox Initiative, which allows fintech startups to conduct live experiments in a controlled environment with regulatory supervision.

There is still a tendency for ecosystem stakeholders to work in isolation, attempting to build their own fiefdoms, rather than building on each other’s progress: “We’re all trying to reinvent the wheel and getting nowhere.”

Yet there are signs things are changing, he says, pointing to the Smart Selangor program for which the local authorities were developing their own app for bus routes. It never really gained traction. Now, the state is urging the private sector, including Grab, to contribute ideas. “Governments need to look at leveraging on partnerships or existing ecosystems, rather than building something from scratch,” says Goh.

Goh is proud of Grab’s role in boosting individual household incomes, which represent a true increase in spending power, but notes there is more work to do in order to really develop the digital ecosystem.

The Malaysian government has promoted e-commerce in particular, with creation of its Digital Free-Trade Zone, an online platform to connect small and medium-sized enterprises with cross-border opportunities.

Looking more broadly at the company’s future role, Goh sees Grab’s purpose as being to introduce Southeast Asian businesses to the digital world. With a presence in 336 cities across eight countries, Grab has over 9 million micro-entrepreneurs in its network. “By introducing a lot of businesses into the digital sphere, hopefully we’ll then create the habit and propensity to be more digital,” says Goh.

Companies often see the potential of leveraging digital platforms for the front end of their business to increase their customer base and revenues. But Goh hopes that they start to harness the power of technology for more back-end business operations, from borrowing through a digital platform to cloud software for accounting.

Where Malaysian individuals are digitally well connected, businesses are lagging. According to the country’s department of statistics, less than two-thirds (62 percent) of business establishments are connected to the internet, 46 percent have fixed broadband (often of low quality), and just 18 percent have a web presence. Increasing the adoption of digital technologies is a national priority for transitioning to a high-income economy.

This article was produced by MIT Technology Review Insights in association with TM One and first appeared on mit-insights.my on June 19, 2019.